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Hi,
I can’t work out the logic of why it’s necessary to cancel the profit on sales to an associate? What is the reason for that? Thanks!
Because we should otherwise be recognising profits achieved by selling to an entity where we have a significant influence.
It’s elimination only of any UNREALISED profits and it’s the elimination only of OUR (the group’s) SHARE of those unrealised profits
It’s basically the same principle as pup adjustments with subsidiaries but, for associates, we eliminate only our share whereas with subsidiaries we eliminate the full pup
OK?
Thanks for your reply.
Did you mean to type “shouldn’t otherwise”? I’m not sure what’s wrong with recognizing profits achieved by selling to entities that we have significant influence. Is it because we might try to artificially inflate our profits? But in that case, what does the associate have to gain?
Sorry I’m taking a while to get my head around it!
“Did you mean to type “shouldn’t otherwise”?” – no I typed it correctly. There’s a “because” at the start that creates the negative
We’re only eliminating our share.
Here’s something I’ve never said before! If you deal with pups in the same way that I do (eliminate the full pup in the associate – that automatically eliminates just our share because we will take just our share of that associate’s adjusted profits) that’s exactly what we do with pups with subsidiaries!
Get your head around that!
I can see the logic of what you’re saying there. I think I find it easier to understand with associates, because I can see that the group has not made a profit until the inventory has actually been sold, and left the group. But with associates I’m struggling a little. Hopefully it’ll sink in by the end of the day!
I believe that you mean “subsidiaries” not “associates”
“understand with associates, because I can see that the group has not made a profit” but I understood what you were saying
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